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2016 (9) TMI 595 - AT - Income TaxPenalty u/s.271(1)(c) - defective notice - Held that - The show cause notice u/s. 274 of the Act is defective as it does not spell out the grounds on which the penalty is sought to be imposed. As find from the show cause notice that the AO has not even indicated the section under which penalty is sought to be levied on the assessee. The show cause notice also does not indicate as to whether penalty was sought to be levied on the assessee for concealing or furnishing inaccurate particulars of net wealth. - Decided in favour of assessee.
Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961. 2. Validity of the show cause notice issued under Section 274 of the Income Tax Act. 3. Grounds for imposing penalty: concealing particulars of income or furnishing inaccurate particulars of income. Issue-Wise Detailed Analysis: 1. Imposition of Penalty under Section 271(1)(c): The Assessee challenged the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which confirmed the Assessing Officer's (AO) imposition of a penalty under Section 271(1)(c) of the Income Tax Act, 1961. The case originated from a search operation conducted under Section 132 of the Act, revealing undisclosed income. The Assessee disclosed an additional income of ?4,00,000 for the assessment year 2004-05, which was not included in the original return filed on 06.12.2004. The AO initiated penalty proceedings for not disclosing this income in the original return, resulting in a penalty of ?92,001. The Assessee argued that no penalty should be imposed as the additional income was declared during the search and included in the return filed subsequently, with taxes paid accordingly. The Assessee contended that mere disallowance of a claim does not imply furnishing incorrect particulars or fraud, referencing the Supreme Court's decision in K.C. Builders vs. CIT. 2. Validity of the Show Cause Notice under Section 274: The Assessee raised a preliminary objection regarding the validity of the show cause notice issued under Section 274 of the Act. The notice did not specify whether the penalty was for "concealing particulars of income" or "furnishing inaccurate particulars of income." The Tribunal referenced the decision in Suvaprasanna Bhattacharya vs. ACIT, where it was held that an ambiguous show cause notice is bad in law. The Karnataka High Court in CIT & Anr. v. Manjunatha Cotton and Ginning Factory emphasized that the notice must clearly state the grounds for penalty, failing which it violates principles of natural justice. 3. Grounds for Imposing Penalty: The Tribunal found that the AO did not indicate the specific section under which the penalty was sought to be levied, nor did the show cause notice specify whether it was for "concealing particulars of income" or "furnishing inaccurate particulars of income." The Karnataka High Court's principles were cited, highlighting that the notice must clearly state the grounds for penalty, and using a standard pro forma without striking out irrelevant parts indicates non-application of mind. The Tribunal concluded that the defective notice rendered the penalty order invalid. Conclusion: The Tribunal held that the show cause notice under Section 274 was defective as it did not specify the grounds for imposing the penalty. Consequently, the penalty imposed was cancelled. The Tribunal did not address other merits of the penalty imposition due to the defective notice. The appeal of the Assessee was allowed, and the order was pronounced on 03.08.2016.
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